Swiping a credit card for payment is fast and easy – especially in this tough economy, but the numbers show that it is not quick or simple when it comes to paying debt back. Of the 25 million credit-active people in the country, 40% are not using credit responsibly.**
“It’s clear that we aren’t managing our credit behaviour very well as a nation or as individuals,
says Garnet Jensen, Senior Director, TransUnion Consumer South Africa.” The outstanding amount owed on consumer credit between July and September 2018, was a staggering R1.82 trillion. “If you are using credit facilities, the best advice is to manage your payments responsibly,” advises Jensen.
With consumers becoming increasingly cash strapped, the demand for credit is continuing to rise, with credit cards, store cards and bank overdrafts having totaled up to nearly R19-billion.
TransUnion highlights that when you find it hard to pay on time – words like ‘default’ and ‘judgment’ may sneak their way into your life.
How can defaults and judgments impact credit, and what can you do?
TransUnion says that the first step to taking charge of these words is to understand them. “It makes such a difference to people when you take out the fear factor and simplify the language of credit. It makes an uncomfortable situation easier to think about and is a very good way to start managing debt,” explains Jensen.
1 Count the costs
Don’t ignore debt commitments. If you find yourself falling behind on a payment – it can have a real impact on your life. Tackle debt head-on, otherwise:
it may lower your chances of being given credit in the future,
it will likely make the cost of credit more expensive, and
it could even affect your chances of getting a job – especially if you work in finance or a job that requires you to deal with cash responsibly.
# 2 Learn the language
What is a default? If you’ve missed a payment for over 3 – 6 months, then action is taken against you because you have avoided (or defaulted) on your payment promise. A default stays on your credit report for one year or until you bring the account up to date. The good news is, that this status is removed once the credit provider gives a confirmation that the money has been paid back. In terms of the National Credit Act, a credit provider must give you 20 days’ written notice, warning you that your default will be reported to the credit bureau.
Jensen points out that, “As tight cash flow, difficult employment conditions and fuel prices continue to create real challenges for households across the country, TransUnion has seen a 2.4% rise in consumer defaults over 12 months.”
What is a judgment? This is more serious. If you fail to answer reminder letters, you don’t stick to payment arrangements, or you have fallen behind, a credit provider can take action against you by applying for a court judgment. A judgment is granted by the court when legal summons is issued and you fail to defend the summons or make payment of the amount claimed. A court judgment stays on your credit report for five years or until it is paid in full. In general, you’d be listed for ‘defaulting’ before a judgment is applied against you. Be careful, if you don’t take any action to defend the summons or if you don’t contact the credit provider to make an arrangement, a judgment can be taken in your absence.
3 Take back control
How do you find out if you have anything against your name? A summons may come as a surprise because reminders may not have been received in the mail due to an address change for example.
A great place to start is to access your credit report regularly. This is a record of your credit history from a number of sources, including banks, retailers, cell phone companies, and collection agencies. It also reflects your payment behaviour over a 24-month period.
Consumers are often unaware or too nervous to check their credit status, particularly if they suspect they’ve defaulted on a payment or have a judgment against them. In fact, less than 3% of South Africa’s 25 million credit-active consumers check their credit report each year, even though everyone is entitled to one free credit report every 12 months*.
“When reviewing your credit report, it is really important to identify the red flags such as ‘judgments’ and ‘defaults’ because both have a hugely negative impact on your credit score,” cautions Jensen. TransUnion also offers a credit alert service with some of its subscription products. This service will alert you via SMS or email should a new default or judgment be added to your credit report.
4 Move from red to green
What can you do to resolve the situation? Defaults and judgments, if paid up, can be removed with the help of credit bureaus like TransUnion. Generally, once paid up, these are automatically removed. However, if you want to speed up the process you can log a dispute. You will need to provide all the relevant documents including the paid-up letter from the credit provider that listed you originally. Once your dispute is logged, it will take 20 working days to be reviewed. You shouldn’t take chances with this process because if the case is found to be invalid, it is recorded on your credit report for 12 months.
“If you have borrowed money, you are considered to be a credit-active consumer. And, if you are in a position to use credit, you need to be financially responsible. A credit report changes constantly throughout your life as long as you are credit-active,” concludes Jensen.